How
Guarantees
Work
Guarantee institutions help SMEs and entrepreneurs access financing by sharing lending risk with financial institutions. Many businesses have viable projects but lack sufficient collateral. A guarantee replaces part of this collateral and enables financial institutions to grant the loan.
1.
THE BASIC
IDEA
2.
HOW A
GUARANTEE WORKS
3.
WHY GUARANTEES
MATTER
A guarantee reduces the risk of lending
When a bank provides a loan to an SME, a guarantee institution commits to repay a defined share of the loan if the borrower defaults. Guarantees usually cover up to 80% of the loan, while the bank retains the remaining risk. The SME remains fully respon-sible for repaying the loan.
1.
THE BASIC
IDEA
2.
HOW A
GUARANTEE WORKS
3.
WHY GUARANTEES
MATTER
From loan request to financing
If the SME cannot repay the loan, the guarantee institution reimburses the agreed share of the loss.
1.
I
The SME applies for a loan at a bank.
2.
I
The bank requests a guarantee from a guarantee institution.
3.
I
The guarantee institution evaluates the project and covers part of the risk.
4.
I
The bank grants the loan to the SME.
1.
THE BASIC
IDEA
2.
HOW A
GUARANTEE WORKS
3.
WHY GUARANTEES
MATTER
Closing the SME financing gap
Guarantee schemes help viable businesses obtain financing even when they lack sufficient collateral. They are widely recognised as one of the most effective policy instruments to address financing gaps for SMEs.
GUARANTEES HELP TO:
unlock bank lending for SMEs
support investment and innovation
create and safeguard jobs
strengthen economic resilience